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1QFY12 results
Apollo’s standalone 1Q results were weaker than expected with PAT
decline of 33% QoQ (+17% YoY). While the YoY comparables were
boosted by the impact from the strike in 1QFY11, QoQ performance was
weak with Ebitda margins declining 30bps, interest costs rising 20% QoQ
and PAT declining 33% QoQ. Consolidated performance was dragged by
weakness in South Africa, which slipped into losses, while Europe
surprised positively. An already uncertain domestic outlook, overhung by
slow demand and high capacity, faces additional risks from possible
removal of the anti-dumping duty on Chinese and Thai imports. Whilst the
stock seems fairly priced, risks remain to the downside. U-PF stays.
India: performance dragged by lower margins, higher interest
Apollo’s YoY performance in the India business was boosted by the low base
from 1QFY11, which was depressed by the Kerala strike. Revenue growth
came in at 75% YoY (+11% QoQ), driven by +45% volumes. However, Ebitda
margins fell 240bps YoY and 30bps QoQ to 8.0% as material cost pressures
continued. Interest costs doubled YoY and rose 21% QoQ, dragging PBT
growth to 9% YoY/-22% QoQ. PAT declined 33% QoQ (+17% YoY).
India: uncertain outlook made by worse by possible duty change
Demand in the domestic business remains under pressure with inventory
levels rising and Apollo already resorting to a production cut. Whilst pricing
has picked up and raw material costs are easing, demand growth remains low
(sub 5%) and the risk to volumes remains to the downside. The low demand
could trigger discounting, particularly by smaller players. The repeal of the
anti-dumping duty on Chinese and Thai truck/bus radial imports, if
implemented, could worsen the environment and depress margins in the key
TBR segment. Management pointed out that costs for Chinese tyres are
significantly lower and large distributors often buy lots directly from the
manufacturer. This would also reduce costs for Michelin, a price leader in TBR.
Europe doing well, South Africa disappoints
South Africa saw profitability worsen and slipped into an Ebit loss for the
quarter. Vredestein saw revenue growth of 38% YoY (-3% QoQ) with Ebit
margins of 9.8% (-190bps YoY, -870bps QoQ) and Ebit growth of 15% YoY.
Capex plans are being curtailed and growth capex will be limited to Chennai.
Risks elevated, retail U-PF
We have left our forecasts on Apollo unchanged. Whilst softening rubber
prices could drive margins, this is offset by downside risks from softening
demand and possible regulatory change in India, as well as losses in South
Africa. The high leverage adds the risk of a sharp increase in interest costs.
Overall, we see the balance of risks to be on the downside. Retain U-PF.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
1QFY12 results
Apollo’s standalone 1Q results were weaker than expected with PAT
decline of 33% QoQ (+17% YoY). While the YoY comparables were
boosted by the impact from the strike in 1QFY11, QoQ performance was
weak with Ebitda margins declining 30bps, interest costs rising 20% QoQ
and PAT declining 33% QoQ. Consolidated performance was dragged by
weakness in South Africa, which slipped into losses, while Europe
surprised positively. An already uncertain domestic outlook, overhung by
slow demand and high capacity, faces additional risks from possible
removal of the anti-dumping duty on Chinese and Thai imports. Whilst the
stock seems fairly priced, risks remain to the downside. U-PF stays.
India: performance dragged by lower margins, higher interest
Apollo’s YoY performance in the India business was boosted by the low base
from 1QFY11, which was depressed by the Kerala strike. Revenue growth
came in at 75% YoY (+11% QoQ), driven by +45% volumes. However, Ebitda
margins fell 240bps YoY and 30bps QoQ to 8.0% as material cost pressures
continued. Interest costs doubled YoY and rose 21% QoQ, dragging PBT
growth to 9% YoY/-22% QoQ. PAT declined 33% QoQ (+17% YoY).
India: uncertain outlook made by worse by possible duty change
Demand in the domestic business remains under pressure with inventory
levels rising and Apollo already resorting to a production cut. Whilst pricing
has picked up and raw material costs are easing, demand growth remains low
(sub 5%) and the risk to volumes remains to the downside. The low demand
could trigger discounting, particularly by smaller players. The repeal of the
anti-dumping duty on Chinese and Thai truck/bus radial imports, if
implemented, could worsen the environment and depress margins in the key
TBR segment. Management pointed out that costs for Chinese tyres are
significantly lower and large distributors often buy lots directly from the
manufacturer. This would also reduce costs for Michelin, a price leader in TBR.
Europe doing well, South Africa disappoints
South Africa saw profitability worsen and slipped into an Ebit loss for the
quarter. Vredestein saw revenue growth of 38% YoY (-3% QoQ) with Ebit
margins of 9.8% (-190bps YoY, -870bps QoQ) and Ebit growth of 15% YoY.
Capex plans are being curtailed and growth capex will be limited to Chennai.
Risks elevated, retail U-PF
We have left our forecasts on Apollo unchanged. Whilst softening rubber
prices could drive margins, this is offset by downside risks from softening
demand and possible regulatory change in India, as well as losses in South
Africa. The high leverage adds the risk of a sharp increase in interest costs.
Overall, we see the balance of risks to be on the downside. Retain U-PF.
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